There are four types of nature of markets, which is monopoly, monopolistic, perfect competition and oligopoly.
Monopoly can be defined as a market structure which is characterized by a single seller which sells a unique product or service in the market. There are four characteristics of monopoly which is that monopoly is a single firm selling all output in the market, a firm which sell that particular product which is unique, requires barriers to enter and exit and is specialized in information. First of all, a monopoly market is a market which is controlled by a single seller. So in this case, the seller will have full control on stating the price. A hypothetical example that be used to illustrate the features of …show more content…
Each firm acts independently and has a limited share of the market. So, and individual firm has limited control over the market price while large number of firms leads to competition in the market. Despite of large number of sellers, each firm is in position to exercise some degree of monopoly through product differentiation. Product differentiation refers to the products on the basis of brand, size, color, shape and etc. The product of a the firm is close but not perfect a perfect substitute for other firm. The implication of “ Product Differentiation” is that buyers of a product will differentiate between the same products produced by different firms. So, they are willing to pay different prices for the same product produced by different firms. This gives some monopoly power to an individual firm to affect market price of its product. Under monopolistic competition, products are differentiated and these differences are made known to buyers through selling costs. Selling costs is the expenses incurred on marketing, sales promotion and advertisement of the product. This is to persuade the buyers to buy a particular brand of the product in preference to competitor’s brand. Because of this, selling costs constitute a substantial part of the total cost under monopolistic competition. So, under monopoly, selling costs are of small amount as the firm does not face competition from any other firm. Other than that, under monopolistic competition, firms are free to enter into or exit from the industry at any time they wish. It ensures that there are neither abnormal profits nor any abnormal losses to a firm in the long run. But, it must be noted that entry under monopolistic competition is not easy and free as under perfect competition. On the other hand, buyers and sellers have no perfect knowledge about the market conditions. Selling cost create